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Muni is getting in the housing game. Will the politics of affordability kill its plans?

San Francisco’s transit agency is facing an existential budget crisis, with ridership at little over half of pre-pandemic levels and voters rejecting fresh investment in the system even as century-old facilities crumble. It also owns a whole lot of land in San Francisco, where a housing crunch has made real estate as valuable as it gets. 

The opportunity seems obvious: Let the San Francisco Municipal Transportation Agency make money by building much-needed housing on its property. 

But this is San Francisco. 

And the San Francisco Municipal Transportation Agency's Potrero Bus Yard project—now four years in the works—is the perfect example of how such a seemingly straightforward solution can so easily go awry in this city.

Due to previously agreed-upon affordability requirements, the Potrero Yard project, which would include 575 housing units atop the bus facility, isn’t expected to net the agency any money. But SFMTA Director Jeffrey Tumlin has his eye on a bigger ambition: Creating a playbook for the cash-strapped agency to develop the land it owns into housing, creating a sustainable source of revenue. And a range of its portfolio—from its bus yards to its parking garages—could be on the table. The agency owns nearly 150 acres of land in the city, after all.

“Parking demand is in rapid decline,” Tumlin said. “Can we sawcut the Mission garage in two and put a commercial tower on part of that land? Those are all questions we’ll want to be exploring with policymakers, the planning department and others.”

But if the $600 million Potrero project is any indication, San Francisco’s housing politics could get in the way of those ambitions. A decision on who to choose as the developer has stalled for many months as politicians debate: How much of the housing should be affordable?

The transit agency has already committed to ensuring at least 50% of the housing is affordable and plans to let the developer decide the rest. However, members of the neighborhood working group on the project and Supervisor Shamann Walton, who represents the district, want it to be 100% affordable—a demand that could wind up killing the housing altogether by scaring off developers. But if the developer opts for anything less than 100% affordable, it may ignite a political debate that could end up derailing approval at the Board of Supervisors. 

Emblematic of the city’s housing debates, the Potrero development could lay the groundwork for the struggling transit agency’s future, for better or for worse. 

“The reason why Muni is slow and unreliable and decrepit is because we've been papering over our structural deficit by deferring maintenance for decades,” Tumlin said. “I am trying to fix that problem, and that is politically very unpopular.”

A Familiar SF Game: Will It Pencil Out? 

Prospective developers of Potrero Yard are wary of the affordability issue, with some already rejecting participation in what they see as a political and financial disaster in the making. 

It’s not the first time the city’s transit agency has tried to build housing. In 2019, an effort to turn the Moscone Garage into a hotel and housing development sputtered out. The agency rejected four proposals because they failed to meet the necessary revenue streams to replace the garage. The garage was netting SFMTA $2 million annually, according to a San Francisco Business Times report. The Potrero project, too, could suffer from similar feasibility issues. SFMTA Board Chair Gwyneth Borden told The Standard the project is likely to be delayed now that voters rejected a $400 million transportation infrastructure maintenance bond that would have plugged a gap in cash flow the agency needs for the Potrero Yard project.

Aerial view of Potrero Yard, located at Bryant and Mariposa streets. | Video by Mike Kuba

After receiving proposals from three project teams at the end of last year, the agency approved an early version of a predevelopment agreement in early March, but didn’t choose a lead developer. According to the agency, it reviewed the proposals and is now going back to the potential developers with revisions, which it aims to have done by the end of the year. 

The developer on this project will be responsible for financing for the new bus facility, the housing, and some general infrastructure updates up front. Once the bus yard is complete, the agency plans to pay $180 million up front and then $30 to $35 million per year over 30 years for maintenance, acting CFO Jonathan Rewers said at a recent SFMTA meeting. The mayor has also committed $35 million to the project. Covering the rest of the cost of the housing component will be up to the developer—which may be no small feat in the current economic climate. 

Sam Moss, executive director at Mission Housing Development Corporation, said his group was taken out of consideration for the project, and that it was a bit of a relief.

“I wish whoever wins the best of luck, and Mission Housing will support them however we can,” Moss said. “But I don't know how they're making it work. It certainly didn't work when we ran the numbers.”

Emerald Fund, too, was disqualified for the project because its submission was judged noncompliant with certain business terms, according to the company’s president, Mark Babsin. He declined to give details.

How Do You Solve a Problem Like Having No Money?

The slow progress bodes ill for the agency’s bigger real estate and budgeting plans: Tumlin dreams of adding housing to many of the agency’s other aging bus yards. One candidate is the Presidio Yard, another bus maintenance facility built in 1912 that’s in need of upgrades. Another is the huge parking garage at 5th and Mission, which could be cut in two with housing built on half of it.

In total, the agency owns around 3.8 million square feet of garage space in the city, plus an additional 116,000 square feet in parking lots. 

“We are looking at how we best utilize our property both to address larger citywide problems, but also translate our land into a sustainable revenue source,” Tumlin told The Standard.

If he can make development on transit agency property a reality, it could be a game-changer for a system that otherwise looks to be heading for service cutbacks in the years to come, especially after voters declined to approve a $400 million maintenance bond, which could have gone to infrastructure upgrades like modernizing old bus yards. 

If successful, SFMTA’s development plans could also be a template for the city’s school district, which faces a similar existential fiscal crisis while owning lots of under-utilized property.

Muni Sticks Its Neck Into a Blazing Hot Housing Debate.

But success in that effort will require all the political muscle that Tumlin can muster, and then some. 

“The challenge that we run up against is the politics of housing in San Francisco and the disagreement at the policymaker level about whether we should be building market-rate housing in the city at all or using city land only for affordable projects,” Tumlin said. 

Tumlin is all too aware that housing politics could sink the projects. So is his board, which held two lengthy public hearings even before approving the initial agreement for the Potrero Yard project. During those meetings, SFMTA board members fretted about feasibility and approval at the Board of Supervisors—and also about whether the agency should instead be focused on maximizing profits on the more than 100,000-square-foot yard. 

“I personally don’t think we’re getting as much value out of this land for this cash-strapped agency and this development potential…as we could be,” SFMTA Board Vice Chair Amanda Eaken said at the March 1 board meeting.

That same tension was apparent during a tour of the Potrero Yard earlier this year, where SFMTA planner and tour host Paul Bignardi declined to go off script and answer journalists’ questions about the housing component of the project. The tour was laser-focused on why the 107-year-old bus yard needs to be modernized, but touched only briefly on its plans to build housing.

SFMTA planner and Potrero Yard Modernization Project tour guide Paul Bignardi discusses plans for the building on March 8, 2022. | Video by Sophie Bearman

Board of Supervisors President Shamann Walton, for his part, stands in staunch opposition to SFMTA leadership’s development vision: “I would have a problem with market rate housing being built on public property,” Walton told The Standard. 

Some in the surrounding community echo that sentiment. Roberto Hernandez, CEO of Cultura y Arte Nativa de las Americas, which puts on the city’s annual Carnaval celebration, sits on the community working group for the Potrero project. Like Walton, he says he will settle for no less than 100% affordable housing on the site. 

Hernandez is a native of the Mission District and saw firsthand the displacement brought on by the dot-com boom. 

“This is public land,” Hernandez said. “It can get done. If there is a will, there’s a way.”

These housing debates aren’t just about principle: San Francisco’s record on housing approvals demonstrates that they threaten to kill the project entirely. 

There have already been affordable housing projects built on SFMTA land, like the Balboa Park Upper Yard that converted a parking lot into 131 units of housing for people who make up to 60% of the area’s median income and a new development planned for Fourth and Folsom Streets. But the combination bus yard and housing development is a new frontier for the transit agency—and whichever developer chooses to take it on. 

The Show Must Go On—But Will It? 

The city’s transit agency has made it clear that the bus yard renovation will go on, with or without the housing. It’s still not clear to Dan Sider, chief of staff to the city’s planning department, if too high an affordability mandate could kill the housing component.

“The math is a real question here,” Sider said. “Do I think we can have our cake and eat it too? Probably not. Is there a middle ground out there? I hope so.”

The Potrero Yard Modernization Project will replace the existing two-story maintenance building and bus yard with a three-story building. | Video by Mike Kuba

If Moss is right and financing the project simply won’t be worth any developer’s while, the housing component may be dead before it even begins. There’s also the threat that a housing plan with closer to 50% affordable risks being shot down by the Board of Supervisors, whose current members have shown their willingness to strike down housing that doesn’t hit their desired affordability minimums

If the housing does get built, it could pave the way for a new era of city problem-solving on the housing front. But if it succumbs to political gridlock, it would be a failure all too familiar to San Franciscans, and call into question yet again whether the city is at all realistic about the financial challenges of the post-pandemic era, its housing crisis and its sustainability goals.